Exxon profit drops on biggest production decline since 2008

April 26 (Bloomberg) -- Exxon Mobil Corp., the world’s largest energy company by market value, said net income fell 11% as its biggest first-quarter production decline since 2008 wiped out most of the benefit of record oil prices.

First-quarter profit was $9.45 billion, or $2 a share, compared with $10.65 billion, or $2.14 a year earlier, the Irving, Texas-based company said in a statement today. Exxon was expected to report per-share net income of $2.08, based on the average of 16 analysts’ estimates compiled by Bloomberg.

Chairman and Chief Executive Officer Rex Tillerson has been looking for new projects to reverse production declines that reached 5.5% during the first three months of this year, the third straight quarter of shortfalls, according to data compiled by Bloomberg. Lower output was driven by natural field declines and the impact of higher prices on production sharing agreements.

The company’s oil output fell by 7.7% during the quarter while production of U.S. natural gas that is fetching the lowest prices in a decade rose 0.7 percent.

“The production growth slackening is a concern,” Allen Good, an analyst at Morningstar Inc. in Chicago, said today in a telephone interview. “But they should have some projects coming online in the next couple of years that will add crude production so hopefully they will reverse some of these declines.”

Dividend Increase

Sales rose 8.8% to $124 billion. Exxon fell 1.7% to $85.35 at 9:34 a.m. in New York. Before today, the shares had risen 2.5% this year.

Exxon became the world’s biggest dividend payer yesterday when it boosted its quarterly distribution by 21% to 57 cents a share.

The increase brings the company’s annual payout to shareholders to $2.28 a share, or $10.7 billion, more than AT&T Inc., Apple Inc. and General Electric Co., according to Howard Silverblatt, senior index analyst at Standard & Poor’s.

“The 21% increase is obviously very large, but we think there’s more to come,” Jason Gammel, an analyst at Macquarie Capital Ltd., said today during an interview with Maryam Nemazee on Bloomberg Television’s “The Pulse.” “Another 20% next year is certainly achievable.”

Gas Price Slump

U.S. gas fell 40% during the quarter to an average of $2.503 per million British thermal units as new wells in shale formations glutted domestic markets and demand slumped during a mild winter. The fuel reached a 10-year low of $1.902 on April 19 before rising to $2.068 yesterday.

Brent crude futures, the benchmark for two-thirds of the world’s oil, averaged $118.45 a barrel, a record for the first quarter and a 12% increase from a year earlier. Exxon’s production was 51% oil and 49% gas last year, according to data compiled by Bloomberg.

Tillerson appeared with Russian Prime Minister Vladimir Putin in Moscow on April 16 to announce a $3.2 billion exploration accord that will allow Exxon to drill for crude with state-controlled OAO Rosneft. In exchange, Rosneft bought 30% stakes in several Exxon-operated projects in Canada, Texas and the Gulf of Mexico.

Exxon already relies on Russian fields for 1 of every 15 barrels it pumps worldwide.